Death Star Supernovas

Another Death Star deal bites the dust in D.C., slamming onto the same scrap heap as that scary would-be combination of News Corp., MCI Corp. and EchoStar Communications Corp. in 1997 — and its improbable follow-up, cable-controlled Prime-Star (remember that outfit?) buying News and MCI's satellite slot.

Rupert Murdoch pulled out of the first deal, worried about its impact on cable carriage for his networks, and the Justice Department shot down the follow-up, disliking the idea of cable operators controlling a scarce high-power direct-broadcast satellite slot.

Earlier in the 1990s, the FCC did some blasting of its own, shooting from the sky John Malone's plan for Tele-Communications Inc. to buy the high-power slot that was later sold at auction to News and MCI. (It was ultimately sold to EchoStar, after EchoStar's Charlie Ergen sued Murdoch for breach of contract.)

The FCC also thwarted Malone's attempt to use another high-power slot, assigned to Canada, for use in a U.S. high-power DBS service.

All that governmental opposition to cable operators taking over DBS real estate should have given Ergen pause before he tried his own satellite land grab for DirecTV Inc. DBS slots aren't any less scarce now than they were when Malone was trying to get one.

On the other hand, cable's track record in Washington was so dismal, Ergen might have felt falsely confident about his prospects, so long as he kept bashing cable.

Well, he was wrong. Now it remains to be seen whether analysts were right in saying Ergen would win whether or not his buyout of rival DirecTV passed muster.

True, he got a close look at DirecTV's books, but it came at a price: He's still on the hook to buy PanAmSat Corp., and the deal has a $600 million breakup fee that DirecTV says he'll owe if and when it craters.

It seems like getting a fat settlement from someone else's folly (Murdoch's) was a much better bargain.

When the music stops, old hands Murdoch and Liberty Media Corp.'s Malone could find themselves back in the picture to buy DirecTV.

But assuming EchoStar and DirecTV — clearly established as rivals of one another, and not just cable — remain stand-alone entities, a new, comprehensive look at the satellite industry says Ergen's EchoStar does, indeed, stand on the firmer ground.

EchoStar has gained ground on its older and bigger DBS adversary over the last year and a half. In five of the last six quarters, it has added more subscribers on a net basis. EchoStar has managed to cut deals with big retailers Wal-Mart Stores Inc. and RadioShack Corp., cutting into a big DirecTV lead that stemmed from its extensive ties with consumer-electronics makers.

Those observations come in Banc of America Securities analyst Doug Shapiro's 143-page Sept. 27 report beginning coverage of both EchoStar (strong buy) and Hughes (buy). He also made some overall subscriber-growth projections, concluding that DBS — which crested in terms of net new subs in 2000 — should hit 30 million in 2010.